How will you manage an RRSP contribution this year?
Save for Lady Gaga and Charlie Sheen’s publicist, the most creative people on earth this stretch of the calendar may be Canadians at tax time.
Admit it, you or your accountant turn into a mix of David Blaine and Hosni Mubarak ahead of your annual filing, figuring how best to hide and manipulate your money to keep it from the CRA.
Yet when trying to whittle down that taxable income, Canucks appear to be struggling with that ever-important conundrum: how the hell can I actually max out my RRSP contribution this year?
Indeed, it’s a sad state of affairs among the modern finances of Canadians. Everyone knows the responsible thing to do is put away for retirement (thus easing your tax hit come April) but why can’t we seem to do it?
Times are tough, sure, yet less than six million Canadians contributed to their RRSP in the 2009 tax year – only about a quarter of all tax filers, according to the CBC.
So, as the economy continues its repair and the March 1st RRSP deadline nears, we get creative with how to find money to put away.
For instance, some Canadians borrow to contribute to their RRSP, a scenario that seems fine on paper but can easily get messy, notes Metro financial columnist Alison Griffiths.
“You take out a loan, make the (RRSP) contribution, get a tax deduction and, hopefully, a refund,” she writes. Then “you repay the loan, the investments grow and you live happily ever after.”
Of course, such inventive measures should only be taken if your other ducks are in line – which is to say, if you’ve got other high-interest debt, such as a looming credit card balance, it’s probably just best to focus on paying that down rather than bothering with your RRSP.
In any case, there are a million ways we try to get our dough into an RRSP, whether we actually get there or not.
So, what’s yours? How will you contribute to your RRSP this year? Or, if you’re not contributing, why not?
By Jason Buckland, MSN Money
Posted by: Dr. J. Lindon | Feb 22, 2022 6:49:50 PM
I will not be contributing to my RRSP this year. I haven't for the past 22 years. My company pension plan is so high, it takes all of my RRSP room. I use other tax shelters like limited partnerships, which have always turned out quite lucrative, as well as effectively converting earned income to capital gains. My wife , however, has a lot of RRSP room each year, and we always max out on the contribution.
Posted by: Rick K | Feb 23, 2022 12:47:30 PM
The best thing to do is first ask yourself if you are living above your ability to pay your bills. Tell tale signs are balances carried forward on credit cards, outstanding loans for holiday travel etc. A credit card should be used to use thier money for up to a month interest "free". This is only free if you pay biil in full on time and you do not have an annual card fee. $100 annual fee is like the interest on $500 dollars borrowed for a year at 20%. This means the only way to break even on this card you have to have a balance due at the end of each month of at least $500 and pay it off on time. You can do that on a no fee card as well and save the $100. So are we paying the $100 fee for Air Miles? Check out your air miles collected to see if that is a saving. Next, we use the air miles for a vacation and charge onto our card for the hotels etc. and come home to a bill at the end of the month. Can we pay it off in Full? or do we get a loan? so around and around it goes. Better get all bills paid and get a loan only to buy the RRSP, use the refund to pay down the loan or use it to buy next years RRSP. Once you get ahead and start buying your RRSP at the start of the year and everything is cool, Use the refund to go on a holiday. You earned it.
Posted by: Ross | Feb 23, 2022 3:48:27 PM
I contribute monthly. Started when I was 40. Had other priorities. Better late than never. I suspect the $1,000,000 for retirement figure to be inflated. I do not want to live like a king nor a peon but somewhere in between. As long as three meals a day, roof over head, clothes on back and better security than living on the street all will be well. Oh, and I will need a T.V.. And a laptop. And some other items but that's it for extravagance.
Posted by: Alex | Feb 23, 2022 6:20:59 PM
I'm 35 and this will be the first year that I contribute to my RRSP. Before now, I"ve been paying off debts. When I retire I plan to live on the cheapest place on this earth that still has strippers and the internet - I'm still looking around.
Posted by: T to the Roy to the... | Feb 23, 2022 7:13:51 PM
This is the first year my wife and I have felt comfortable enough to make a serious contribution, and a start, to our RRSPs. We both had started our own when we were in our 20's, and of course job loss and other factors made us turn right around and withdraw them...at a huge loss.
We decided to take out a small loan to start us off. At a relatively low rate, I figure having a larger figure in for the extra year making money in funds will more than offset the cost of borrowing if invested smartly. And yes, we have now debts beyond our mortgage (on a mobile home, you think I can afford a real house in the laughable Canadian market today?) and the discipline to either reinvest the tax refund or pay down the loan with it.
We might not make enough to enjoy life to the most now, but at least we can have something to pay to the nursing homes by the time we retire. Maybe. Of course, every time I seem to invest in something it always crashes. Global Economy, watch out! ;)
Posted by: Mary | Feb 23, 2022 11:05:09 PM
I'm doing this year, what I have been doing every year for the last 5 when I discovered the RRSP Wizard button on my Income Tax Software. I buy RRSP's every month, and then in late February, after I have done my taxes, I push the RRSP Wizard button, and run out to my RRSP provider and buy the amount that the Wizard suggests to get the exact amount back. I used my line of credit for this. Then I file my taxes by efile, and receive the refund usually before I have to pay any interest on the line of credit. To me, it's like a no-brainer. I can see a real difference in my savings! I can't believe that more people don't do this!
Posted by: Abdul | Feb 24, 2022 8:40:40 AM
Dr. J can you elaborate more on converting earned income into capital gains? Also could you go into more details about the tax benefits of limited partnerships. Would you play the role of the limited partner to receive those benefits? I will look into these on my own, however I appreciate hearing from experience.
Posted by: Mary | Feb 24, 2022 9:07:13 AM
Over the years we contributed to RRSP & I have a pension plan; when we draw out on our RSP's we must pay taxes. Right now, we are retired we put money in our TFS account; split our pension & we are doing fine with CP & OAP & gov't pension. We take small trips to see our children, we still use the flyers, catch moose & fish and are living fine. Maybe if we relax, count our blessing we will do fine. By the way our home increased in value by 150% since we built it. By the we hope to get a refund on income tax.
Have a Good Day & we live in a good country!
"Mary"
Posted by: Abdul | Feb 24, 2022 10:15:46 AM
I am a student and I work full time, would it be smarter to contribute now and not claim it on my taxes so that the credits can accumulate and then I can use them during my higher income years after graduation. Can I use an RRSP credit more than once in one year. For example, if my contribution limit is say $500 for the next 4 years until I graduate. Should I max out my contribution room every year but not claim it. Then will I be able to claim all 4 credits in one tax year plus the rrsp credit for the current tax year I will be in?
Posted by: Mary | Feb 24, 2022 10:33:07 AM
Dear Abdul,
You RRSP adds up; that is you can save the contribute room up until you graduate then you can get a refund each year or ask your employer to take out less taxes. You may have plenty of expenses this year to get back all your taxes.
I think I am right; I am just an retired person who has always been an employee & maybe someone else would like to comment.
"Mary"